Advanced Copyright Issues on the Internet - Fenwick & West LLP

The Ninth Circuit’s view of the vicarious liability doctrine was broad on both thefinancial benefit and supervision prongs. With respect to the financial benefit prong, the NinthCircuit, citing Fonovisa, agreed with the district court that “financial benefit exists where theavailability of infringing material ‘acts as a “draw” for customers.’” 1250 The Ninth Circuit reliedon the district court’s finding that more users register with the Napster system as the quality andquantity of available music increases. 1251With respect to the supervision prong, the Ninth Circuit noted that “Napster has anexpress reservation of rights policy, stating on its website that it expressly reserves the ‘right torefuse service and terminate accounts in [its] discretion, including, but not limited to, if Napsterbelieves that user conduct violates applicable law … or for any reason in Napster’s solediscretion, with or without case.’” 1252 The Ninth Circuit ruled that this reservation of rightspolicy was, of itself, sufficient evidence of Napster’s right and ability to supervise its users’conduct, and (in one of the most important aspects of the entire opinion), gave rise to a duty topolice the Napster system: “To escape imposition of vicarious liability, the reserved right topolice must be exercised to its fullest extent. Turning a blind eye to detectable acts ofinfringement for the sake of profit gives rise to liability.” 1253This holding raises a number of significant issues. First, the ruling that a reservation ofrights policy by itself satisfies the supervision prong of the vicarious liability test puts serviceproviders in a potential Catch 22 situation with the DMCA. As discussed further below, underSection 512(i) of the DMCA, in order to be eligible for the safe harbors of the DMCA, a serviceprovider must adopt and reasonably implement a “policy that provides for the termination inappropriate circumstances of subscribers and account holders of the service provider’s system ornetwork who are repeat infringers.” Under the Ninth Circuit’s ruling in Napster I, however, theadoption of such a policy would seem to expose the service provider to vicarious liability underthe supervision prong. The service provider is therefore put in a Catch 22 – whether it shouldavoid adoption of a reservation of rights policy in order to avoid common law liability, therebypotentially giving up its DMCA safe harbors, or preserve its DMCA safe harbors by adoptingsuch a policy, thereby potentially increasing its exposure to vicarious liability.Second, the duty to police seems contrary to Section 512(m) of the DMCA, which statesthat a service provider need not “monitor[] its service or affirmatively seek[] facts indicatinginfringing activity, except to the extent consistent with a standard technical measure” in order tobe eligible for the DMCA safe harbors. Thus, the Ninth Circuit’s opinion in Napster I seems torequire that a service provider do more than is required by the DMCA in order to avoid commonlaw secondary liability.1250 Napster I, 239 F.3d at 1023 (quoting Fonovisa, Inc. v. Cherry Auction, Inc., 76 F.3d 259, 263-64 (9th Cir.1996)).1251 Napster I, 239 F.3d at 1023.1252 Id.1253 Id.- 283 -